Payment and Settlement Systems Act, 2007: Statutory Framework & UPI Rules
Economy & Banking · Monday, 10 August 2026
The Payment and Settlement Systems Act, 2007 is India's principal legislative framework regulating all digital, electronic, and traditional payment systems under the Reserve Bank of India. Government clarifications affirmed that citizen UPI transfers remain free under proposed 2026 amendments.
Quick highlights
- Assented in December 2007 and enforced on August 12, 2008.
- Designates Reserve Bank of India (assisted by Payments Regulatory Board) as sole statutory regulator for payment system operators (PSOs).
- Mandates prior RBI authorization for any entity operating payment systems in India.
- Provides legal recognition and protection for netting and settlement finality, even during participant insolvency.
- Section 25 makes dishonour of Electronic Fund Transfers (EFT) due to insufficient funds a criminal offence punishable like cheque bounce cases.
Context
The Central Government clarified that everyday consumer UPI transactions remain 100% free following proposed amendments to Section 10A of the PSS Act, 2007 via the Taxation Laws Amendment Bill, 2026.
Key Facts
The PSS Act 2007 grants RBI authority over card networks, PPI wallets, UPI, and money transfers. Section 25 aligns electronic fund transfer dishonour with Section 138 of the Negotiable Instruments Act, 1881.
Significance
Establishes legal certainty, operational security, and dispute resolution mechanisms for India's rapidly growing fintech ecosystem.
Challenges / Way Forward
Balancing payment aggregator system sustainability with enabling statutory provisions for capped merchant fees without burdening ordinary retail users.
Exam Angle
Important for GS-III (Indian Economy, Banking Reforms, Digital Payments Infrastructure, Statutory Powers of RBI).
Remember this
- Came into force on August 12, 2008 under Reserve Bank of India regulatory oversight.
- Section 25 criminalizes failed Electronic Fund Transfers (EFT) due to insufficient funds.
- Protects gross and net settlement finality from being unwound during insolvency.
- Section 10A amendment proposed in 2026 creates an enabling framework for capped MDR on large merchant transactions while keeping P2P UPI transfers free.
Background reading
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